Mets Owners Rebut Charges in Madoff Suit

Saul Katz and Fred Wilpon, at training camp last month in Port St. Lucie, Fla., offered a rebuttal in a 94-page court filing.Credit
Bradd Barr for The New York Times

The owners of the Mets, having been sued for $1 billion by the trustee representing victims of Bernard L. Madoff’s vast Ponzi scheme, charged in court papers Sunday that the trustee had repeatedly ignored or misrepresented evidence that showed they had no good reason to have suspected Mr. Madoff was operating a fraud during their many years of investing with him.

The owners, in a 94-page filing in United States Bankruptcy Court in Manhattan, also accuse the trustee, Irving H. Picard, of having kept evidence from them that would have assisted their case and that would have undermined his central argument: that the owners, Fred Wilpon and Saul Katz, had turned a blind eye to a raft of warnings that Mr. Madoff might have been suspect.

“After months of leaks, false accusations and withholding of evidence, we can finally legally respond to the work of fiction created by the trustee,” Mr. Wilpon and Mr. Katz said in a statement issued with the filing of their legal papers. “Let us be very clear: we did not know that Madoff was engaged in a fraud. There were no red flags and we received no warnings.”

In December, Mr. Picard, who has recovered roughly $10 billion for Madoff victims since being appointed by a federal judge in 2008, alleged that the owners were sophisticated investors who had enriched themselves over many years of dealings with Mr. Madoff. He argued that the men had used their Madoff profits to support and fuel the operations of the Mets, the men’s real estate businesses, and their creation of a lucrative regional cable television network — all while “willfully ignoring” cautions about Mr. Madoff’s legitimacy.

Mr. Wilpon and Mr. Katz, citing the lawsuit, announced in February that they were placing a portion of the team up for sale. Five to eight investment groups have been approved by Major League Baseball to enter initial discussions with the owners. In recent weeks, according to people briefed on the team’s finances, it seems all but certain that the Mets, because of the lawsuit and their own fortunes with a struggling franchise, will have to sell more of a share of the club than they want, perhaps even controlling interest.

In the court papers, Mr. Wilpon and Mr. Katz portray themselves and their partners at Sterling Equities, their corporate holding company, as relatively unsophisticated securities investors who trusted Mr. Madoff and who effectively turned over control of hundreds of millions of dollars in investments to him. Instance by instance, they angrily contest the trustee’s claims that they had been aware of meaningful concerns about Mr. Madoff’s operations.

“The central allegations in the complaint are directly contradicted by sworn testimony taken by the Trustee’s counsel prior to the filing of the complaint,” said David Cohen, general counsel for the Mets. “The complaint, which ignores that testimony, was filed in an effort to extract a huge and unwarranted settlement — with complete disregard for the harm that these misleading allegations would cause the reputations and businesses of the Sterling Partners.”

David J. Sheehan, chief counsel to Mr. Picard, said in an e-mail Sunday: “The Katz Wilpon defendants are wrong on the facts and the law. The Trustee will prevail.”

In particular, Mr. Wilpon and Mr. Katz take lengthy issue with Mr. Picard’s claim that a number of the warnings about Mr. Madoff had come from within their own circle of friends and partners — chiefly Peter Stamos, their partner in a hedge fund known as Sterling Stamos.

Adviser’s Stance Disputed

According to Mr. Picard’s suit, on several occasions Mr. Stamos and people who worked for him, including his chief investment strategist, shared with Sterling’s partners their apprehensions about Mr. Madoff and his investment methods. They complained about their inability to duplicate his returns, the lack of transparency of his strategy and of rumors he was front-running his customers’ trades to make a few extra dollars, the lawsuit said.

Ashok Chachra, the chief investment strategist at Sterling Stamos, had warned Mr. Wilpon, Mr. Katz and their families that Mr. Madoff’s returns were “too good to be true,” according to an e-mail cited in Mr. Picard’s lawsuit. “Notwithstanding our concerns, the Wilpon and Katz families continued to invest with Madoff Securities,” Mr. Chachra wrote in his own e-mail on Dec. 13, 2008. Two days later, the suit said, Mr. Stamos wrote in an e-mail that Sterling Stamos did not invest with Mr. Madoff because Mr. Madoff’s operation would have failed the firm’s due diligence tests.

But Mr. Wilpon and Mr. Katz argue in their filing that “Sterling Stamos never suggested to any Sterling partner that” Mr. Madoff “was engaging in fraudulent activity.” They say that the only reason Mr. Stamos might have discouraged them from investing further with Mr. Madoff was that he wanted their portfolio to be more diversified.

They assert that Mr. Stamos in a deposition for the lawsuit had celebrated Mr. Madoff as a genius of sorts.

“I’m embarrassed to say that I said to Mr. Katz on a number of occasions that my assumption is that Mr. Madoff is the most honest and honorable man,” Mr. Stamos said, according to the court papers. Mr. Stamos, according to the filing, later told Mr. Katz that it was his assumption that Mr. Madoff was “perhaps one of the best hedge fund managers in modern times.”

Mr. Wilpon and Mr. Katz said they were denied access to Mr. Stamos’s deposition by Mr. Picard, and that it was Mr. Stamos’s lawyer who eventually provided his deposition to the owners of the team and their lawyers.

In another deposition cited by Mr. Wilpon and Mr. Katz, the Sterling Stamos executive, Ashok Chachra, referred to Mr. Madoff as “very talented” and a “pioneer.” The filing also said that Mr. Chachra never said that Mr. Madoff was running a Ponzi scheme and never told the Sterling Partners not to invest with Mr. Madoff.

“At every step in this process,” Mr. Wilpon and Mr. Katz said in a statement, “the Trustee has dismissed our requests for information in his possession when we have cooperated fully with him.”

In their filing, Mr. Wilpon and Mr. Katz and their lawyers seek to refute several other “red flags” about Mr. Madoff cited by Mr. Picard in his lawsuit.

Mr. Picard, for instance, had claimed that Ivy Asset Management, an investment fund manager, had conveyed its suspicions about Mr. Madoff to Mr. Wilpon and Mr. Katz and their partners. Sunday’s filing suggests that was unlikely, in part because Ivy Asset itself is “being sued by its investors and the New York Attorney General for concealing its Madoff ‘concerns.’ “

Mr. Picard had also asserted that one of the senior Sterling partners, Arthur Friedman, had offered his own warning when he tried, on a number of occasions, to replicate Mr. Madoff’s alleged trading strategy and could not produce the same results.

The filing by the owners says that Mr. Friedman, who oversaw the scores of family and business accounts with Mr. Madoff, found that he indeed had been able to all but match Mr. Madoff’s performance, and that he had viewed the exercise as “an unequivocal success.”

In their filing, Mr. Wilpon and Mr. Katz, men who had become rich with their real estate and other businesses, suggest that they lacked the kind of expertise that might have been required to have suspected Mr. Madoff of any kind of fraud. They indicate that they regarded Mr. Madoff as their trusted adviser, and had little interest in, or ability to, critically examine what he did with their family and business fortunes, almost every aspect of which over 25 years they had linked in some way to their investments with Mr. Madoff.

In a deposition taken by the trustee’s office, Mr. Katz is asked whether he considers himself a sophisticated investor in the stock market. “The answer is ‘no,’ ” Mr. Katz replied. “I don’t do well in the markets, the stock market. I’m not good at it. It’s not my business.”

Seeking Suit’s Dismissal

When Mr. Wilpon was asked in his deposition whether he understood how Mr. Madoff made money off his investment business, he responded, “Not in any kind of depth.”

Mr. Wilpon added, “I’m not an investment person, I’m not an investment, stock investment adviser, so I wouldn’t have that kind of expertise.” The filing asks the judge in the case, Burton R. Lifland, to dismiss the suit.

The judge last month enlisted former Gov. Mario M. Cuomo of New York to help mediate the lawsuit, and perhaps work out a settlement. It is unclear how the dueling court filings will affect the settlement process, but Mr. Cuomo, in an interview several weeks ago, noted that additional public wrangling could make a settlement harder to achieve.

Mr. Picard amended the original December suit last week, including new allegations, and listed the total amount he is seeking at slightly more than $1 billion.

One of Mr. Picard’s new allegations was that Mr. Madoff had lent Mr. Wilpon and Mr. Katz the money they needed to go forward with their new cable network in 2004, and that Mr. Wilpon and Mr. Katz had disguised the $54 million loan as an investment by Mr. Madoff’s wife, going so far as to draw up and sign a phony investment document.

In their papers, Mr. Wilpon and Mr. Katz said that “even assuming the documentation was erroneous, it was of no consequence” because the loan from Mr. Madoff was repaid the day after it was received, and did not ultimately go toward the cable effort. They denied the trustee’s allegation that the episode was one more reason for them to be suspicious of Mr. Madoff.

A version of this article appears in print on March 21, 2011, on page A1 of the New York edition with the headline: Mets Owners Rebut Charges In Madoff Suit. Order Reprints|Today's Paper|Subscribe